Colony decision looms Monday

Former Colony Chairman Murf Klauber. Photo by Steve Reid

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Colony Founder Murf Klauber, Colony Lender principals Randy Langley and David Siegal and all 252 unit owners are living a veritable cliffhanger until 9 a.m. Monday when Federal Bankruptcy Judge Rodney May has said he will make his final ruling on whether to approve a settlement agreement.

And the agreement, proffered by the Association of Unit owners, seeks to pay Klauber $3 million in consulting fees, cram down Colony Lender’s loan value from about $15 million to $6 million and consolidate the real estate and ownership into the hands of the owners of the 252 units by transferring Colony Lender’s collateral to the Association.

Colony Lender, the largest creditor in the Colony case, has vowed to appeal anything short of being paid full value on the loans and interests it has acquired. In court filings made in advance of the Jan. 27 hearing, Colony Lender urges Judge May to convert the case to a Chapter 7 liquidation and allow the foreclosure sale, which the judge postponed last December.

During the last court date in December, Judge May said, “This will not go on forever; I will decide in January.”


Litigation backdrop

Klauber, in trade for his $3 million consulting payment, has agreed to not pursue the $25 million claim that he won on appeal against the Association.

But Judge May was concerned with that arrangement and told Association attorney Jeffery Warren last December, “One thing that bothers me is giving money that is expendable right away to Dr. Klauber. It seems to me, if Dr. Klauber is being paid as a consultant, then the thought should be to not pay him until the pie comes out of the oven…Colony Lender has been delayed and its assets are going to other sources.”

Since that statement, Association of Unit Owners Attorney Jeffrey Warren has filed briefs to Judge May wherein he argues in detail the legality under U.S. Bankruptcy law to pay Klauber and cram down Colony Lender.

The Association has offered to Judge May the tax assessor’s valuation as the price to be paid to Colony Lender over time.


Tangle of ownership

Judge May spoke of the uniqueness of the case in that the 18-acre property had ownership divided up with some interests liened, and then transferred and then further divided.

May pointed out that Colony Lender paid $4.5 million to buy its collateral, but the note had a face value of far more, and he added, “It seems the price paid is a component.”

Colony Lender Attorney Michael Assaf has argued that case law says that what was paid for debt has no bearing on the right to a deficiency judgment. He added that the only right is the equity of redemption and payment in full.

May responded that he was not sure how that affects restructuring debt in his bankruptcy courtroom and that there were some very detailed and exotic issues at play.

Association of Unit Owners attorney Jeffrey Warren told May that the court is considering a “classic cram down” and had to determine if it was fair and equitable.

When May asked on the final day of testimony last December why he should not confirm the settlement plan, Colony Lender attorney Michael Assaf offered an 86-point answer. Some of his points included that the court is powerless to offset the terms of a note and the terms of a foreclosure and that Colony Lender has equitable title. He also said that the only thing that can be done in bankruptcy court to force the debtor to pay the amount of redemption, or the amount owed, or the indubitable equivalent.

In the end, Judge May, is expected to either reduce the $15 million claim Colony Lender holds as the largest creditor and allow the owners to join forces with Klauber and pay him a $3 million consulting fee in trade for not pursuing the $25 million legal claim, or, rule against he settlement.

Either way, both sides have vowed to appeal an adverse outcome.


Town’s recent actions

While the parties have waited for Judge May’s promised ruling supposedly coming on Jan. 27, The Longboat Key Town Commission made a pair of major decisions in December regarding zoning and property conditions at the Colony.

In short, the Commission unanimously voted to allow the 237 units to remain grandfathered — at least until April 30, 2014 — and to schedule a formal nuisance property hearing on March 4 to decide the fate of the deteriorating structures.

Town Building Official Wayne Thorne told the board that he found hundreds of items that led him to the official conclusion of the nuisance status. Town Manager Dave Bullock said the area is causing blight on the Key and creating a negative effect on neighboring property values as well as safety issues in event of a windstorm with debris.

If, at the March 4 nuisance property hearing, the Commission finds that the Colony is a Public Nuisance, the board will draft a resolution declaring the Colony such in its entirety or in part. That is a necessary step that can lead to demolition.


Bond amount spurs suit

In December, the Commission also raised the bond it holds as a condition of the extension from $50,000 to $250,00 to ensure property conditions are maintained. This bond hike was subsequently challenged in court by the Association, marking the first court entanglement the Town has entered in the Colony situation.

The Association had previously posted a $50,000 bond, but the five-fold increase was simply too much and prompted the filing of a Writ Certiorari petition on Jan. 10, 2014.

The petition asks the 12th Circuit Judge for relief from the bond and to “quash” or remove that requirement as not legally justifiable.

The Colony Association of Unit Owners’ attorney in dealing with Town matters, Donald Hemke, argues in the petition that the town had never once had to use any portion of the $50,000 bond it held to guarantee very similar conditions.

Second, Hemke says that the town manager had recommended a $100,000 bond in his own report on the issue and that was to guarantee even broader issues than are required by the Commission.

A Circuit Court Judge has so far agreed that the petition filed by The Colony Association has merit, and has ordered the town to show cause to substantiate how it legally arrived at $250,000. This action gives the town 30 days from Jan. 15 to respond and then The Colony Association has 20 days to respond to the Town’s argument.

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1 Response for “Colony decision looms Monday”

  1. Colony Ex-Worker says:

    The colony was a dump before defualt and should be bulldozed and made into a public park with public beach access.

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